Macroeconomic policy objectives Flashcards
What are policy objectives?
Government’s major macroeconomic objectives
What are policy instruments?
Techniques used to achieve policy objectives
What are the policy objectives? (4)
Balance of payments
Inflation
Growth
Employment
What are the policy instruments? (3)
Monetary policy
Fiscal policy
Supply-side policy
What does unemployment represent?
A waste of scarce factor of production
Why do government want to promote full employment? (2)
Because it leads to an increase in the standard of living and reduces human misery
How does full employment benefit the government? (2)
The government receives income through tax payments and they do not have to spend as much on benefits
How does inflation affect the international competition?
Decreases competition because the prices are too expensive
What is the boom/bust policy?
The government using macroeconomic tools to stimulate and then contract the economy
What is total factor productivity?
The overall productivity of inputs used by a firm in producing a particular level of output
Why do governments try and pursue economic growth?
They believe it increases living standards, by increasing the output of goods and services, increasing GDP per head
What are the disadvantages of inflation? (2)
Consumer buy now rather than later -> adds to higher inflation rate
Workers try bid up their wages -> cost-push inflation
What is deflation?
A sustained decrease in the general price level
What is the balance of payments on the current account?
An annual measure of the relationship between the amounts spent on imports and that earned from the sale of exports
When does a balance BoP occur?
Exports = Imports
